Sallie Mae, the private student loan company, finds in a survey the unsurprising information that students are bearing more and more of the burden of higher education costs. While wages have largely stagnated over the past decade, college and university costs have soared. So there’s simply no other way this could go.

In its annual survey, the nation’s largest private student lender found that undergraduates covered 30 percent of the cost of college themselves during the most recent academic year — the largest share in four years. They spent an average of $2,555 from their income and savings and took out $3,719 in loans, the report showed.

Meanwhile, parents struggled to maintain their level of financial support. Though they still paid for more than a third of their children’s college costs, they relied more heavily on borrowing, according to the study. The portion covered by parents’ out-of-pocket contribution fell to 28 percent, down nine percentage points from its peak two years ago.

The report called the changes a “major shift in spending” that occurred across all income levels. It comes amid a national debate over the $1 trillion student debt burden and the rising number of borrowers who have fallen behind on those loans. The Sallie Mae study provides a window into how families are factoring those costs into their college choices.

So spending that would otherwise come out of careful family planning and saving over 18 years instead goes into debt. And we know that student debt now equals $1 trillion. That’s not as much as mortgage debt, but the default rates on student debt are starting to rise, and so have the economic effects of having young people, a vibrant sector of the economy, in this much debt. It impacts household formation and indirectly the housing market, and it impacts consumer spending. It has become a structural issue in the economy that has conspired to help tamp down any chances of recovery. At some point, these debt overhang issues must be sufficiently addressed.

2 Responses
to “More Indications of Rising Student Debt”

One difference, at least in our family situation, you can refinance your mortgage to take advantage of lowered interest rates. You can’t refinance student debt. So my kid is paying off a 10,000 loan at 6.8%, while we are paying off a mortgage at 4% (refinanced down from around 6.8% last year).

I do know people (in their 40s) who were paying off HUGE student loans (acquired in graduate school) at extremely high interest rates — say $100,000 at nearly 9%. Their wealthy parents just lent them the money to pay that off, and they are repaying the parents at about 4%.

This debt overhang is hitting a huge swath of the middle and lower middle class. It’s no wonder the economy is struggling.